Anyone who has ever taken out a loan for a car or a house understands the importance of having a high credit score. Peoples’ entire lively hoods hang in the balance of having a good number, but recent economic hardships have caused many people to default on loans and wreck their credit scores. However, according to the credit ranking agency FICO, they way they calculate your score could change in the near future. Go Banking Rates reports on the change and the effects it will have on your credit score:
The Fair Isaac Corp. (FICO) and data firm, CoreLogic, plan to release a new credit score that would change what affects credit score rankings for consumers by accounting for new information.
The companies evaluated the current factors of the FICO score, and decided that including short-term loans and rental information into the FICO score calculation will likely help borrowers appear less risky to lenders.
Together, FICO and CoreLogic have worked together to pull consumer data, including property records and liens, short-term installment loans for used cars and rental information, to develop a new credit score.
Vice President of CoreLogic, Tim Grace, estimated that 70 percent of people will end up with better credit scores due to the updated FICO score calculation.
Even more astounding is that about 44 percent of the U.S. landed into the 800 to 850 FICO score range — the highest possible bracket — under the new score, as opposed to about 18 percent under the current system. The number of people in the 700 to 799 bracket dropped some, but this was due to the rapid increase in Americans with even better credit under the new method.